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Shell (RDS.A) Inks Deal with Egypt for Western Desert Fields

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Integrated oil and gas company, Royal Dutch Shell plc (RDS.A - Free Report) along with U.S. based Apex International Energy, recently signed three oil and gas exploration deals worth more than $81.4 million.

Shell has been operating in Egypt for more than a century, while Apex has just forayed into the Egyptian market.

Deal Details

The oil and gas exploration deal incorporates 16 new fields in the Western Desert. Per the first deal, Shell will invest $35.5 million in one Egyptian project. The other two deals involve Apex making an investment of $45.9 million in the country.

Deal Rationale

Energy production in Egypt has gone down in recent years while domestic consumption increased rapidly. This turned the net energy exporter country into a net importer. To counter the situation, the Energy Department of Egypt launched a drive to draw the attention of foreign investors. The drive drew several bids for oil and gas exploration in the country, among which six were accepted, including that of Shell, in December 2016.

We would like investors to know that in August 2016, Shell discovered a gas field in the Western Desert with a reserve of 500 billion cubic feet, which holds great promise. Thus, investing in the region is justified.

This deal can increase the company’s production and revenues as well as strengthen its presence in the Egyptian market.

About the Company

Headquartered in The Hague, Netherlands, Shell explores for and extracts crude oil, natural gas, and natural gas liquids. The company transports oil and gas, converts natural gas to liquids to produce and market fuels and other products. It also extracts bitumen from mined oil sands and turns it into synthetic crude oil. Shell also generates electricity from the wind. The company divides its operations into four major segments: Upstream, Downstream, Corporate and Integrated Gas.

In terms of assets, Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects should help volume growth in the long run.

Shell’s revenues, earnings and cash flow have been significantly hurt by the three-year commodity bear market, while attacks on its local establishments by Nigerian militants have created another major problem.

Price Performance

Shell’s stock has gained 2% year to date, substantially outperforming the 6.2% fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

Shell carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the oil and energy sector include Range Resources Corporation (RRC - Free Report) , Subsea 7 SA (SUBCY - Free Report) and TransCanada Corporation (TRP - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Range Resources’ sales for 2017 are expected to increase 122.8% year over year. The company delivered a four-quarter average positive earnings surprise of 51.8%.

Subsea’s sales for 2017 are expected to increase 11.6% year over year. The company delivered a positive average earnings surprise of 83.8% in the last four quarters.

TransCanada delivered a positive earnings surprise of 12% in the second quarter of 2017.

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